Kmart searches for 'stability' in its base

New York — Kmart will rebuild its business by focusing on a high/low pricing strategy, emphasizing return on assets, pushing greater responsibility toward field managers and leveraging its data systems to better control costs, president and ceo Julian Day said last week.

Speaking at a press briefing here, Day acknowledged that the 1,500-unit chain has a long way to go to regain consumers. Asked to describe Kmart's customer base, he replied, "Today — and I'm being practical — [the core customer] is anybody who walks into the front of the store. Today our goal is to stabilize our customer base."

Discipline was the keynote of his theme. There are now just 15 people in the company authorized to sign off on purchase orders, as opposed to 220 previously. Kmart has also moved into headquarters some of its most successful field managers and given them the responsibility to simplify communications between headquarters and the stores with an eye toward freeing up store personnel to spend more time with customers. They are also working to identify potential cost savings at the store level, Day said.

Kmart also is undertaking its first sku rationalization in about 10 years, he said, and about 10 percent of its overall assortment has or will be discontinued. The move should ultimately free up shelve space for items that bring a better asset return, and should help with in-stock, he said.

"Sku reduction is very important part of what we're doing. Internally, I talk about sku creep as similar to plaque. From time to time you have to go to the dentist and get your teeth cleaned," he said.

In terms of item merchandising, Kmart has shifted its focus to products that build market baskets, rather than one-shot promotions that simply boost comps in the immediate term. "You do not leave the rest of your market basket to chance and hope your margins add up," he said, adding that "from a margin point of view, the early results of moving that needle across have been positive."

The retailer has also begun handing over the responsibility of some key skus to store management, Day said, to better reflect the demography of local communities. This "fundamental change" includes allowing managers to order from a portfolio of 500 high-volume, high-margin skus across all categories, and is the extreme opposite of the centralized structure previously used. The strategy will also help Kmart pursue a more targeted urban merchandising approach, he said.

Day said he was "pleasantly surprised" at the quality of the of the supply chain management systems already in place when he arrived, though less so about how they were used. The company is trying to regulate procedures such as sending basic items, for example, straight to the shelves instead allowing them to linger in the back room. Day said he wants the back room used only for ad items. "The doors only swing one way; that's an important piece of discipline."

The company will also continue to court and develop national brands; it said that within six months of its introduction, the Joe Boxer apparel and home collection has generated $300 million in sales. "It's really a stellar record of the introduction of a new brand."

Martha Stewart Everyday continues to perform well, Day added, and "is a central part of our strategy."